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Small Business Economics

, Volume 44, Issue 4, pp 867–888 | Cite as

Trust, transaction costs and contractual incompleteness in franchising

  • George Hendrikse
  • Patrick Hippmann
  • Josef WindspergerEmail author
Article

Abstract

The aim of this study is to address empirically the degree of contractual completeness in franchising by combining transaction cost and relational governance perspectives. First, the ratio of specific and residual decision rights is developed as a measure of contractual completeness. Second, we extend the transaction cost perspective of contractual completeness in franchising by arguing that the franchisor’s and franchisees’ investments have a negative effect on contractual completeness under bilateral dependence and a positive effect under unilateral dependence. Third, we complement the transaction cost perspective by developing new hypotheses regarding the impact of general and knowledge-based trust on contractual completeness. General trust of the franchisor reduces the franchisor’s perception of relational risk and hence the necessity to control the network relationship by more complete contract planning, and knowledge-based trust increases information sharing between the partners and hence the knowledge base for specifying more detailed contracts. The data from the German franchise sector provide some support of the hypotheses.

Keywords

Contractual incompleteness Franchising Transaction costs Trust 

JEL Classifications

D23 L24 L26 

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • George Hendrikse
    • 1
  • Patrick Hippmann
    • 2
  • Josef Windsperger
    • 2
    Email author
  1. 1.Rotterdam School of ManagementErasmus UniversityRotterdamThe Netherlands
  2. 2.Department of Business AdministrationUniversity of ViennaViennaAustria

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